Any Benefit to Actively Managed 401(k)?

Summary

Podcast Summary: "Any Benefit to Actively Managed 401(k)?"

Podcast Information:

• Title: Jill on Money with Jill Schlesinger
• Host/Author: Audacy
• Description: Host Jill Schlesinger, CFP®, addresses challenging and sometimes controversial financial and investing topics without the jargon, aiming to uncover essential insights and provide actionable information. Each week, Jill engages with listener questions and interviews informative guests to help listeners maximize their financial well-being.
• Episode Title: Any Benefit to Actively Managed 401(k)?
• Release Date: July 2, 2025

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Introduction

The episode "Any Benefit to Actively Managed 401(k)?" delves into the efficacy and value of actively managed 401(k) plans. Jill Schlesinger addresses listener queries, offers professional insights alongside her co-host Mark Schlesinger, and provides practical advice on various financial topics ranging from retirement accounts to real estate investments.

Listener Questions and Expert Analysis

1. Actively Managed 401(k) Plans

Listener: Eileen
Timestamp: [01:03] - [03:31]

Question:
Eileen is hesitant about her financial advisor's recommendation to hire Future Capital to manage her $1 million 401(k), which would cost her $275 per month. The advisor claims that constant management could increase returns by 2-4%.

Discussion:
Jill and Mark express strong skepticism regarding the advisor's recommendation. Jill dismisses the idea of constant management, stating, “This is nonsense. There's no way you should do this” ([02:53]).

Insights:

• Cost vs. Benefit: The high fees ($275/month) may not justify the marginal return increase (2-4%).
• Advisor Trustworthiness: Such recommendations may raise red flags about the advisor's motives and the suitability of the strategy for the client's financial situation.
• Recommendation: Jill advises Eileen to reject the proposal, emphasizing the importance of understanding all aspects of her financial plan and consulting further if necessary.

2. Purchasing a Cottage in Ireland

Listener: Deirdre
Timestamp: [03:29] - [04:53]

Question:
Deirdre is considering buying a traditional cottage in Ireland with her sister. She owns an NYC co-op worth $500,000 (paid off) and has access to $50,000 in cash and $60,000 in her Roth IRA in two and a half years. She seeks advice on financing the $150,000 to $200,000 cottage purchase and whether it is a good investment.

Discussion:
Jill finds the idea appealing but cautious, highlighting the need for more information about Deirdre and her sister's financial situations. She questions the use of Roth IRA funds for such a purchase and suggests exploring home equity loans or consulting an Irish bank for a mortgage.

Insights:

• Investment vs. Dream: Jill differentiates between purchasing for personal fulfillment versus purely as an investment, suggesting that the latter is generally not advisable.
• Financial Impact: Using retirement funds could jeopardize long-term financial security, especially if not thoroughly planned.
• Recommendation: Consult an estate attorney to navigate the complexities of gifting, transferring deeds, and understanding the tax implications.

3. Social Security Benefits Timing

Discussion:
Jill addresses concerns raised in her article "Social Insecurity 2033," discussing the potential 23% reduction in Social Security benefits if Congress does not act by 2033.

Insights:

• Claiming Benefits Early: Jill advises against taking Social Security benefits at age 62 if not immediately necessary due to permanent reductions.
• Future Uncertainty: If the system undergoes further cuts, delaying benefits could mitigate the impact of reductions.
• Recommendation: Wait as long as possible to maximize benefits, considering personal financial needs and system sustainability.

4. Roth IRA Conversions for Retirees

Listener: Angela
Timestamp: [04:53] - [09:42]

Question:
Angela, 70 years old and recently retired, holds $1.2 million in a traditional IRA, $550,000 in a brokerage account, and $50,000 in a Roth IRA. She is concerned about the tax implications of her traditional IRA and wonders if converting to a Roth IRA is feasible and advantageous.

Discussion:
Mark suggests a cautious approach, advising against converting the entire amount at once to avoid significant tax liabilities. Instead, he recommends partial conversions over several years. Jill adds that Angela is in the 22% tax bracket and could consider incremental strategies to manage taxes effectively.

Insights:

• Tax Management: Converting large sums can push taxpayers into higher tax brackets, increasing their tax burden.
• Strategic Conversion: Partial conversions spread over time can optimize tax liabilities and preserve liquidity.
• Recommendation: Implement a phased conversion plan, withdrawing manageable amounts each year to balance tax implications and financial needs.

5. Assisting a Retired Sister with Relocation

Listener: Barbara
Timestamp: [09:42] - [14:39]

Question:
Barbara wants to help her retired sister relocate from Florida to a northern state. The Florida house is valued at $125,000, while a suitable northern house costs $200,000. Barbara is unsure whether to buy the northern house outright and transfer the deed or provide funds as a gift.

Discussion:
Jill advises Barbara to consult with an estate attorney to navigate the legal complexities of transferring property or funds. She emphasizes the importance of formal agreements to avoid future tax complications and ensure both parties are protected.

Insights:

• Legal Considerations: Transferring property or large sums of money involves legal documentation to prevent misunderstandings and tax issues.
• Financial Planning: Ensuring that the gift does not negatively impact Barbara’s financial stability is crucial.
• Recommendation: Engage an estate attorney to structure the assistance properly, whether through direct property transfer or financial gifting.

Listener Feedback

Listener: Natalie
Timestamp: [14:39]

Comment:
Natalie shares her positive experience from a previous episode where Jill and Mark assisted her and her husband with financial planning, leading to improved financial and emotional well-being. She expresses gratitude and looks forward to further guidance as they plan for future financial moves.

Response:
Jill and Mark thank Natalie, highlighting the importance of community and peer support in financial journeys. They encourage other listeners to reach out and share their stories, fostering a supportive environment.

Conclusion

In "Any Benefit to Actively Managed 401(k)?", Jill Schlesinger provides thoughtful and practical advice on managing retirement accounts, navigating real estate investments, optimizing Social Security benefits, and assisting family members financially. The episode emphasizes the importance of informed decision-making, professional consultations, and strategic financial planning to ensure long-term financial security and personal fulfillment.

Notable Quotes:

• Jill on Eileen’s 401(k): “This is nonsense. There's no way you should do this” ([02:55]).
• Jill on Deirdre’s cottage purchase: “I don't think most people should do these things as investments. I think you should do that to make a dream come true” ([04:53]).
• Mark on Angela’s Roth conversion: “I don't really want to soak up all of her liquidity” ([09:30]).
• Jill’s advice on Social Security: “If Congress does not act, there will be an across the board 23% reduction in all benefits” ([04:53]).

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Final Thoughts: This episode underscores the significance of critically evaluating financial advice, understanding the long-term implications of investment decisions, and seeking professional guidance when navigating complex financial landscapes. Jill and Mark Schlesinger empower listeners to make informed choices that align with their personal financial goals and circumstances.

Transcript

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[Jill Schlesinger]

Welcome to the Jill on Money show. It's Wednesday, July 2, and we are here answering your financial questions. If you have one, all you need to do is go to our website. That's jillonmoney.com, which is easy to find for you because I know that it's bookmarked. Of course it's bookmarked. I've told you to bookmark it. The reason we want you to bookmark it is because Mark refreshes the content all the time. It's so great. So check it out. And also when, when you go to jillonmoney.com you can sign up for the free weekly newsletter which is available through substack. So if you're a substack kind of poison, you could just search for Jill on Money there. You can buy my book. You can check out our subscription service, Jill on Money Live. That's where you have access to quarterly live webinars. 45 bucks for 12 months will get you four of those webinars, the entire back catalog, bonus audio and video content, all for 45 bucks for the next 12 months. So great. All right, Mark, we have got to do some emails. We're getting backed up. And also I feel like we need to make sure that shy people get a little bit of a little action here. Okay, so the first email is from Eileen, who says, my financial advisor is recommending that we hire Future Capital to manage my 401k. He has already helped me with the allocation in the 401k, but he says this company will be Managing it constantly. He said studies show they increase returns by 2 to 4%. I don't believe that we would be paying $275 a month for a million $401k. He even stated if cash flow was a problem, we could decrease our Roth contributions. I'm hesitant to do this. What do you think?

[Mark Schlesinger]

Managing it constantly.

[Jill Schlesinger]

Constantly. Because we know that works all the time. This is nonsense. There's no way you should do this. Held away 401k management. Oh, it's such. It's growth. It's easy. We're going to give you more. No way. This is nonsense. This to me is unnecessary. You have a million $401k. I don't know anything else about you, Eileen. But if somebody said you should decrease your Roth contribution because managing your 401 is going to make a difference. No way. I say hard no. I'd love to hear more from you. I want to know about what else is going on.

[Mark Schlesinger]

It makes me question the advisor too.

[Jill Schlesinger]

It sure does. I'd like. That's why I want to know. Get back in touch with us, Eileen. I'm going to have you come on. And we'd like to learn more about what's going on for you. But I think no is my first answer. Path of least resistance. No. Okay. Deirdre writes, oh, of course. Deirdre. Of course she has this kind of name. Deirdre writes, I would like to buy a traditional cottage in Ireland. How does Patricia say that? Ireland. She said it like that. 150 to $200,000 with my sister. Oh my God, this sounds so much fun. It would be a retirement home for my sister and a vacation home for me. It's her dream to retire in the Irish countryside near where our mother was born. Oh, I love that. Okay. Deirdre owns an NYC co op worth about a half a million dollars. It's paid off. My sister rents, but she has $40,000 in savings available in cash. My savings are locked up in retirement accounts and unavailable at this time. However, in two and a half years, when I turn 59 and a half, I will have access to $60,000 in my Roth IRA. Would you recommend getting a home equity loan or a HELOC for this purchase? My income is $82,000. Or would it be better to try to get a mortgage as a non resident with an Irish bank? Do you think buying a cottage in Ireland is a good investment or will it be a money pit? Thanks for any advice you can give.

[Mark Schlesinger]

Sounds like a Hollywood movie.

[Jill Schlesinger]

I was just going to say it's Eat, Pray, Love, but north, you know, in Ireland, you know, it just. It sounds like a lovely idea. I am reluctant to give you advice on this because I really don't know what else is going on for you. I know that you're 57 now, and I know that the. This sounds like it's sort of like this dreamy thing, but I think you and your sister need to get together and maybe get in back in touch with us because I don't think that I would want you to spend money in the Roth. And I don't know whether or not it makes sense to have a home equity loan or a home equity line of credit for this. And I don't know whether this really is going to be something that it's going to be. I don't want it to derail your whole retirement. That's what I really think. So I need to know more about, you know, where your sister is in her life in terms of age and what she would be entitled to in terms of income, and for you also to understand what your plans are, because you can access money at 59 and a half. I don't know if you should do that. I have absolutely no opinion on buying a cottage as an investment. I don't think most people should do these things as investments. I think you should do that to, you know, make a dream come true. But I don't know if you could actually do it. Okay, so that's what I would say. Okay, what else do we have? Oh, so I wrote this article called Social Insecurity 2033 after we got a report out from the Social Security Board of Trustees that basically the Social Security Trust fund will run dry by the year 2033. And someone on substack wrote, someone who I know, by the way, Mark, Lillian, who said, thank you, Jill, for this very easy to digest information and advice. Would you recommend that someone who will shortly be eligible at age 62 for retirement benefits start collecting even if they don't need the money yet? No, no, no. And here's why. Because when what we're looking at with Social Security is if Congress does not act, there will be an across the board 23% reduction in all benefits. It is AUT. So Congress has to do something to prevent it. So, Lillian, what I would say is that when you look at that 23% reduction, if it's reducing your benefits at 62, 67, 70, better to wait, especially if you don't need it, because you'll have a higher amount of money on which that haircut is taken. So just think of it this way. At age 62, if you claim Social Security benefits, you're taking a 20% reduction permanently for the rest of your life. Then if something bad happens to the system, it's another 20, 23% reduction from that. So in fact, the Social Security system, under pressure, would actually argue that you would want to wait as long as possible. This next email is from Angela, who wants to know about doing Roth conversion. So pay attention, Mark. She writes, I'm 70 years old, I'm divorced, with two kids who are in their late 20s. I, I own my apartment, no debt. I've got $1.2 million in a traditional IRA, $550,000 in a brokerage account, and 50 grand in a Roth. It's all self managed. This is the first year I'm mostly retired. I'm a late bloomer in realizing that I'll be owing a boatload of taxes on that $1.2 million. My income from here on will be $35,000 from Social Security and pension, $10,000 from real estate holdings, and maybe $20,000 from work. I'd be happy living with 75,000 to $100,000 a year. Unfortunately, I've been so involved with my career that I'm just learning about Roth conversions. Is it too late to convert? Would it make sense to take a hit and convert it all at once and benefit from the tax free earnings for the next 30 years? I'm confused. Help and thank you. I just started listening and I'm learning a lot. So, Mark, for Angela, she's got $1.2 million not taxed yet. She's going to have some income, you know, about 65 grand. And she's got all this money that's going to be taxed. What is your recommendation on converting some money maybe between now and her age 75, when those required minimum distributions will kick in?

[Mark Schlesinger]

I mean, I'd really have to really, really crunch the numbers. But I think I'm going to say no. I don't really want to soak up all of her liquidity. Instead, I would probably, you know, for the next five years she can start pulling out a pretty good chunk.

[Jill Schlesinger]

Yeah, I mean, listen, you're in the 22% tax bracket right now, so there's a couple of things that you could do. You could say, as single, I would like to maybe instead of converting. I certainly wouldn't convert all at once, but maybe what you would do is you could pull some money out and just have it. And you know, I don't know if you wanted to convert, you could, but then as Mark said, then that money is, you know, you lose some of your liquidity. You'll, you'll have to pay tax on it if you pull it out. But, you know, the 24% bracket goes up to $197,300. Maybe instead of pulling the money out and converting it, maybe what you could do is just start taking out like 100 grand a year for the next five years and take that money out, pay the tax that's due, you'll be at the 24% bracket, put it in the brokerage account and then start pulling the money out as needed through RMDs. But you will have taken a chunk of money out by doing that. So you're going to be in good shape. And, you know, yes, you'll have tax free earnings, but that would be great for your kids, but not for you necessarily. I don't know. I think I agree with Mark. Maybe just pull a little extra money up. Okay. Barbara has a question here and she says, I'm recently retired and I find your podcast interesting and informative and humorous. I added that. Okay, I want to help my retired sister. Oh my God. This is a second thing about, like helping. Helping Sisters. Sisters. Helping Sisters. And you know, I love this idea. So Barbara wants to help her retired sister relocate back to our northern state to be close to her children, grandchildren, extended family. The house she owns in Florida will sell for about $125,000. A suitable house in the north for her and her husband will cost about $200,000. They don't have savings, but I want to bridge the gap for them as a gift. I'm not sure how to do this. Ideally, the house up north will be purchased before the one in Florida is sold. So a cash offer could be made. Should I buy the house outright and transfer the deed or transfer the funds to her? Okay, here's what I think you should do, Barbara. You could, I don't know how much money you have. If you wanted to buy the house outright and then transfer the deed, what you need is a lawyer. And that's really the most. I think that's what's actually the most important thing. Maybe that's the easiest thing to do is you buy the house outright and then you gift it to your sister. But then the problem is she'll have to buy it from you in some way, shape or form and you have to have some sort of agreement. So that like she's sort of paying you a dollar a year and you're forgiving the loan over time. So here's what I think. I think you can do it, but I think you should talk to an estate attorney to help you do it because otherwise I think it's going to get messy and I don't want to mess up you guys for your tax situation. Okay? Okay. Natalie. Hey Jill and Mark. I was on the air with you more than a year ago to ask whether my husband and I could trust what a financial advisor told us about my husband retiring and still not needing to touch our retirement accounts. We re listened to that episode tonight and marveled at your wonderful advice and patience and your willingness to pivot when I presented you with new facts, a looming $100,000 inheritance. We are in such a better place financially and emotionally around our money. And I just wanted to thank you for the wonderful work you do for people across the country who can learn from the stories of others. And as a follow up, my husband finally quit one of his part time jobs and we are actively working on shifting from savers to spenders one day. I may write again as we try to figure out a plan for a move into a retirement community sometime in the future. But for today, I just wanted to say thank you, Natalie, Mark, I love that. That's so good. It makes me so happy. That's great. Thank you guys for following up that really talk about making, reaching out and lifting someone up. You guys do that all the time. Thank you so much, Natalie and thank you all for listening. I know that this is probably a hot and short holiday week for many, so we appreciate the time that you give us and always know that we are here for you. If you've got a question, go to jillonmoney.com, click the contact us button and write us a note. And if you want to come on the air, check the box. And if we've said, oh, get back in touch with us, please do, we really do want to hear from you and we'd love, you know, we can change your name and facts and all that stuff. So please let us know how we can help you out. Okay? And don't hesitate. You can subscribe to us on the Odyssey app or wherever you find your favorite podcasts. Please be sure to do something nice for someone else today. Natalie already did something nice for us, so I appreciate it. Step Change your work, change your wealth, change your life. Thank you for listening and we'll talk to you tomorrow.

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